Even after months of rising inflation, Americans are still packing their bags and taking trips. With spring break season fast approaching, that’s good news for travel companies. Delta Air Lines CEO Ed Bastian said on the company’s fourth-quarter earnings call in January, “Demand remains strong as passengers return to the skies and industries return to long-term GDP trends, while supply constraints persist. ” “I am confident that our industry will see tens of billions of dollars of incremental demand over the next few years coming out of the pandemic.” And it’s not just airlines. Last week, Hilton Worldwide CEO Chris Nassetta said, “Demand trends are really strong in the here and now.” The hotel operator reported better-than-expected earnings and revenue growth in the fourth quarter. In the home-rental space, Airbnb also said it was seeing continued strong demand through early 2023. The company reported a decline in fourth-quarter earnings and revenue earlier this week. “Global travel has really grown this year; it’s outperforming the broader market,” said Sylvia Jablonski, CEO and chief investment officer of Defense ETFs. The firm owns a travel exchange-traded fund (CRUZ) that invests in airline, hotel, and cruise stocks. According to Morningstar, the ETF’s total return as of February 16 is about 21%. In comparison, the S&P 500 is up about 6% so far this year. Year-to-Date Performance of the CRUZ YTD Mountain CRUZ “The consumer is still spending, and they’re spending more in services and experiences than in merchandise,” Jablonski said. “There is also inflation. So those companies are benefiting from pricing power and from being the consumer that is actually spending.” She said China’s reopening from its Covid lockdown is helping to boost travel demand, with business travel also picking up. Pricing pressures nevertheless have some nuances. Short-term vacation rentals aren’t growing as fast as they used to be. Short-term rental analytics site AirDNA is forecasting a 5.5% increase in demand this year, compared to a projected 21.1% gain in 2022. Airbnb’s most recent results reflect this. On a constant-currency basis, the company’s average daily rates increased 5% year over year for the fourth quarter. That’s lower than the 12% third-quarter growth it enjoyed in the same period before and the 20% growth it enjoyed earlier. “For the rest of the year, we expect [average daily rates] It will face increasing pressure from mix shifts, as well as new and improved pricing and discounting tools, Airbnb’s management said in its shareholder letter. Several Wall Street analysts expressed some concern about the stock. Shares have made impressive gains since inception. This year, it climbed nearly 54%. But the stock pulled back on Friday, falling 8%. “Risks include competition, slower-than-expected consumer adoption of alternative accommodations, a potential re-acceleration in core short-term stays, and faster-than-usual housing,” Credit Suisse analyst Stephen Xu said in a note on Wednesday. “The expected rollout of ancillary revenue streams. JPMorgan analyst Doug Anmuth noted the potential image issues for Airbnb. Affect the reputation and public perception of Airbnb,” he wrote in a note on Wednesday. The easing of price increases is being seen at Vrbo as well. Expedia, its parent, said it has “seen a light Vrbo” with little movement in pricing, despite strength everywhere. The company, which missed earnings and revenue in the fourth quarter, pointed out that Vrbo is actually coming down from higher highs. Expedia said its earnings results were impacted by cancellations due to inclement weather, such as Hurricane Ian last fall and December’s winter storm. CEO Peter Kern told CNBC’s “Tech Check” last week that the company reported a 20% increase in gross bookings in January. “The trends have been really strong since January,” he said. “There’s just been a ton of demand.” A different story with hotels. At the same time vacation rentals are seeing pricing pressure, hotel room rates are rising steadily. “We have come out of this phase of lagging from pre-Covid levels and we have seen quite drastic and significant acceleration,” said René Reyna, Invesco’s head of thematic and specialty product strategy. The Invesco Dynamic Leisure & Entertainment ETF (PEJ) is currently made up of about 10% airline stocks, 30% restaurants, 40% hotels, casinos and bookings, and 20% entertainment and streaming, he said. In addition to Hilton, Hyatt, Wyndham and Marriott all topped Wall Street’s expectations in their most recent financial reports. Hyatt saw its fourth-quarter revenue per available room (RevPAR), a key performance metric, jump 34.8% from the same period last year. It was also higher than the pre-pandemic level, up 2.4% compared to Q4 of 2019. On an annualized basis, RevPAR increased 60.2% in 2022 compared to 2021, but was down 6.1% for the full year compared to 2019. Wyndham’s fourth-quarter global turnover increased 15% in constant currency over the year-ago period, and grew 20% year over year. Meanwhile, Marriott’s worldwide RevPAR increased 5% compared to 2019, driven by a 13% increase in average daily rate. “With the exception of Greater China, RevPAR has fully recovered in all regions and continues to make meaningful progress in occupancy and ADR,” Marriott CEO Anthony Capuano said in a statement. Defiance’s Jablonski likes Marriott for its strong balance sheet, good management and multiple properties. “They benefit from high-end, luxury consumers and some of their more unique qualities,” she said. So why the difference between hotel and short-term vacation rental platforms? Part of the answer may be that with people re-emerging from Covid isolation, the desire to holiday away from crowds may be fading. Hotels are making ground and I think we’re getting to a much more level of normalcy,” said Kern, Expedia’s CEO. “At Omicron, everyone was focused on getting away but going somewhere safe. Now people are going back to resorts, back to wherever, back to big cities,” he said. “You’re seeing some normalization there, but Vrbo is still very strong compared to 2019.” Positive news is also coming from the airlines flying. According to the International Air Transport Association, the global airline industry should return to profitability this year. The group estimates the airlines will earn $4.7 billion — the industry’s first profit since 2019, when it earned $26.4 billion. Airlines such as Delta, American Airlines and United Airlines cited strong travel demand and higher fares for their strong fourth-quarter earnings as well as forecasts for this year. “We expect a strong demand environment to continue into 2023 and demand for long-haul international travel is expected to improve further this year,” American Airlines CEO Robert Isom said during an earnings conference call in January. For Jablonski, Delta and United stand out as winners. “You have a strong balance sheet, you have reset and enough airplanes like employees,” she said. DAL YTD Mountain Delta’s Year-To-Year Performance Rental car companies haven’t seen much change in rates. Last week, Hertz said its revenue per day grew 3% year over year, and just 1% in the Americas region. Avis Budget’s Americas division saw a decline of 3% year over year. Looking ahead, investors are now simply watching and waiting to see what the Federal Reserve’s next move is with interest rates and whether the US goes into recession. “In the near term, we’re seeing very positive results. And so you know, it’s really the second half of the year, I think it’s going to be challenging,” said Invesco’s Reyna. He said that if there is a recession sometime this year, it will affect companies differently. “There are so many different types of consumers out there,” he said. “Based on where the sweet spot for consumers is for some of these companies, I think it’s really going to determine how much of an impact inflation or recession can have on their businesses.” Those targeting the high-end consumer may not feel much pain, he added. “In a challenging economic backdrop, this segment becomes a bit more resilient,” he said. —CNBC’s Robert Hum, Seema Modi and Michael Bloom contributed reporting.
Travel demand is hot, but some prices may cool: These are the stocks for spring break and beyond